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Watch FOMC Rewind: What the Fed’s July 2020 Decision Means for You

The ongoing COVID-19 pandemic continues to pose risks to public health and the economic outlook. In the latest Federal Open Market Committee meeting, the Fed decided to maintain the target range for the federal funds rate at 0 to ¼ percent.

What does all of that mean and how does it affect you? Our FOMC Rewind video series breaks it down.

Let’s rewind

First, a quick explainer on what the Fed has to do with interest rates and how interest rates affect the average person.

July 2020 FOMC decision

So, what was decided at the latest FOMC meeting?

Transcript

Part 1

Ellen: Hey Lily! What does the Fed have to do with interest rates?

Lily: So, the Fed sets the federal funds rate. That pins down how much banks charge each other for overnight loans and affects interest rates in general.

Ellen: Wait, so what does that mean for me?

Lily: Lower rates mean people can get more money to spend. Also, companies can expand and hire.

Ellen: Hmm, why doesn’t the Fed just keep interest rates low?

Lily: Low rates can help with jobs, which is one of the Fed’s goals. And they can keep rates low as long as prices don’t go up too much, since price stability is the Fed’s other main goal.

Ellen: Do they change rates a lot?

Lily: It depends on what the economy looks like and what’s happening in the world, since what happens there affects businesses and consumers here.

Ellen: Got it. Thanks for the info!

Lily: Any time!

Part 2

Ellen: Just saw the Fed in the news. What’s going on?

Remy: Oh yeah! They just met. They’re keeping the fed funds rate near 0%.

Ellen: Wait, what does that mean?

Remy: It means they want to keep interest rates low, which supports borrowing and lending.

Ellen: Why are they doing that?

Remy: Because in the pandemic tons of people have lost jobs and businesses are trying to stay afloat.

Ellen: Is that the only way they can help?

Remy: It’s the Fed’s main tool, but not the only one. They’re buying lots of bonds to make more cash available.

Ellen: Does the Fed send stimulus checks?

Remy: No, only Congress can do that. The Fed has lending power, not spending power.

Ellen: Oh, that makes sense.

Remy: TTYL

The views expressed here do not necessarily reflect the views of the management of the Federal Reserve Bank of San Francisco or of the Board of Governors of the Federal Reserve System.